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Designer Skin LLC v. S & L Vitamins, Inc., et al.
Unauthorized internet reseller of plaintiffs products is not guilty of trademark infringement, and does not cause actionable initial interest confusion, by using plaintiffs trademarks in meta tags of website at which plaintiffs and its competitors products are sold, and in...

The Ninth Circuit allows Perfect 10 to pursue copyright infringement claims against defendants, who provide web hosting and credit card billing services, arising out of the unauthorized posting on the web by their third party customers of “adult” images in which Perfect 10 holds copyrights. Questions of fact precluded a determination of whether defendants were immunized from monetary liability for such claims by the Digital Millennium Copyright Act (“DMCA”). Such immunity extends only to service providers who “reasonably implement” a policy for terminating those of their customers that repeatedly infringe copyrights. In considering this question, the Ninth Circuit held courts should consider not only the manner in which the defendants responded to “take down” infringement notices sent by the plaintiff copyright holder, here Perfect 10, but also the manner in which they responded to similar notices from third party copyright holders. Because the District Court failed to consider whether defendants terminated customers identified in such third party “take down” infringement notices, the Ninth Circuit could not determine whether defendants “reasonably implemented” a compliant DMCA policy, and thus whether they were entitled to DMCA immunity. The case was accordingly remanded to the District Court for further consideration.

The Ninth Circuit held that defendants had no obligation to respond to the “take down” notices provided by Perfect 10, or take steps to prevent the infringing conduct alleged therein, due to Perfect 10’s failure to provide such notices under penalty of perjury. Absent the sworn acknowledgement required under the DMCA that the complainant is both an authorized representative of the copyright owner, and has a good faith belief that the material at issue is unlicensed, the service provider has no obligation to act upon the notice.

Nor, held the Ninth Circuit, were defendants obligated to take action against purported “red flag” sites defendants serviced, which included sites that purported without authorization to provide users with passwords to access plaintiff’s materials, or other websites bearing names such as “stolencelebritypics.com” or “illegal.net.” The DMCA does not impose on service providers the obligation to conduct an affirmative investigation into the bona fides of such sites. To qualify as a “red flag” site that imposes an obligation on a service provider to act, held the Ninth Circuit “it … need[s] to be apparent that the website instructed or enabled users to infringe another’s copyright.”

The Ninth Circuit allowed Perfect 10 to pursue direct copyright infringement claims against the defendants as a result of the posting of infringing images on hornybees.com. The court held that sufficient evidence of defendants’ direct involvement in the operation of that site was presented to survive a motion for summary judgment.

Finally, the Ninth Circuit held that the Communications Decency Act immunized defendants from the unfair competition, false advertising and right of publicity claims advanced by Perfect 10.

Perfect 10 publishes an adult magazine under the name Perfect 10. It also operates a subscription website at the domain of the same name, at which it makes available to subscribers adult images. Perfect 10 holds registered copyrights in the images that appear on its site. It has also received assignments of the rights of publicity of many of the models photographed in those images.

Defendant CWIE provides web hosting and related internet connectivity services to the owners of various websites. Defendant CCBill provides services that facilitate the use by consumers of credit cards to pay for subscriptions or memberships to e-commerce venues.
Perfect 10 and various third parties sent DMCA take-down notices to defendants stating that web sites operated by defendants’ customers contained images that infringed their copyrights. Unsatisfied with defendants’ response to these notices, Perfect 10 commenced this suit, charging defendants with copyright and trademark infringement, as well as unfair competition, false advertising and violations of the right of publicity.

Defendants moved for summary judgment on the grounds that they were immunized from suit by operation of both the DMCA and the Communications Decency Act. The District Court, in the main, granted defendants’ motion, holding them immunized from all but the right of publicity claims advanced by Perfect 10.

The Ninth Circuit affirmed so much of the District Court’s decision that dismissed the unfair competition and false advertising claims, holding them barred by operation of the Communications Decency Act (“CDA”). The Ninth Circuit reversed the District Court’s refusal to dismiss the right of publicity claim, holding it too barred by operation of the CDA.

The Ninth Circuit also reversed the District Court’s decision that defendants were immunized from plaintiff’s copyright infringement claims by application of the DMCA, and remanded for further consideration as to whether defendants had appropriately implemented a compliant DMCA policy, and taken adequate steps to terminate repeat infringers.

Perfect 10’s Take Down Notices Defective Because Not Sworn To Under Penalty Of Perjury

Defendants argued that they were immunized from monetary liability for Perfect 10 copyright infringement claims by operation of the DMCA. To be entitled to such immunity, a service provider must adopt and “reasonably implement[]” a compliant DMCA policy. According to the Ninth Circuit, such a policy is “implemented” by a service provider “if it has a working notification system, a procedure for dealing with DMCA compliant notifications, and if it does not actively prevent copyright owners from collecting information needed to issue such notifications.” Implementation of such a policy “is reasonable if, under appropriate circumstances, the service provider terminates users who repeatedly or blatantly infringe copyright.”

The statute does not impose on service providers an affirmative obligation to police its users for evidence of repeat infringement. Rather, liability will be avoided if the service provider “acts ‘expeditiously to remove or disable access to the material’ when it (1) has actual knowledge, (2) is aware of facts or circumstances from which infringing activity is apparent or (3) has received notification of claimed infringement meeting the requirements of Section 512( c)(3).”

The Court held that Perfect 10’s DMCA take-down notices were defective as they did not “comply substantially” with the requirements for such notices specified in the DMCA. As a result, these notices did not trigger in defendants an obligation to remove the allegedly infringing images identified therein. The notices Perfect 10 sent were not sworn to under penalty of perjury. Such failing was held by the court to be fatal to the notice’s validity. Said the Court:

We therefore do not require a service provider to start potentially invasive proceedings if the complainant is unwilling to state under penalty of perjury that he is an authorized representative of the copyright owner and that he had a good-faith belief that the material is unlicensed.

Nor, held the Court, could Perfect 10 meet this requirement by combining separately defective notices into one notice that contained all the requisite elements.

In Determining If DMCA Policy Reasonably Implemented, Court Should Examine Response To Third Party Take Down Notices

However, contrary to the decision of the District Court, that was not the end of the inquiry. To be entitled to the protections of the DMCA, a service provider must reasonably implement a DMCA policy. In analyzing whether this has occurred, the Ninth Circuit held the court can look beyond the service providers’ responses to the complaining party’s take-down notices, to the service providers’ responses to non-party take down notices as well. As the District Court had failed to do so, the Ninth Circuit reversed its decision, and remanded the case for further consideration. Said the Court:

Perfect 10 also cites to notices of infringement by other copyright holders and argues the CCBill and CWIE did not reasonably implement their repeat infringer policies because they continued to provide services for websites that infringed non-party copyrights. The district court expressly declined to consider evidence of notices provided by any party other than Perfect 10 on the basis that these notices were irrelevant to Perfect 10’s claims. We disagree.

CCBill and CWIE’s actions towards copyright holders who are not a party to the litigation are relevant in determining whether CCBill and CWIE reasonably implemented their repeat infringer policy.

No Red Flag Sites

A service provider can also be compelled to act if it is “aware of facts or circumstances from which infringing activity is apparent.” Perfect 10 pointed to various web sites, and urged that such sites were “red flags” which imposed on defendants the obligation to take action to prevent access to the site’s allegedly infringing content. These included both sites operated at the domains “illegal.net” and “stolencelebritypics.com,” as well as “password hacker” sites that purported to give users unauthorized access to passwords that in turn allowed them to access plaintiff’s materials.

The Ninth Circuit rejected these claims, holding that the service provider cannot be compelled to investigate the bona fides of such sites. Noted the Court: “We do not place the burden of determining whether photographs are actually illegal on a service provider.” Rather, “in order for a website to qualify as a “red flag” of infringement, it would need to be apparent that the website instructed or enabled users to infringe another’s copyright.”

Perfect 10 also argued that defendants were not entitled to DMCA immunity available to those service providers who store (host) infringing materials on their network at the direction of a third party user under 512(c ) because they receive a “direct financial benefit” from such activity under 512(c )(1). The Ninth Circuit held that this provision of the DMCA “should be interpreted consistent with the similarly worded common law standard for vicarious copyright liability. … Thus, the relevant inquiry is whether the infringing activity constitutes a draw for subscribers, not just an added benefit.”

The Ninth Circuit held that Perfect 10 had failed to demonstrate that, under this standard, the defendants received such a direct financial benefit from the operation of the infringing web sites. Notably, the court held that the flat rate monthly fees received for services rendered, such as hosting, do not qualify as the requisite direct financial benefit. Said the Court:

In this case, Perfect 10 provides almost no evidence about the alleged direct financial benefit to CWIE. Perfect 10 only alleges that ‘CWIE ‘hosts’ websites for a fee.” This allegation is insufficient to show that the infringing activity was ‘a draw’ as required by Ellison. Furthermore, the legislative history expressly states that ‘receiving a on time set up fee and flat, periodic payments fro service from a person engaging in infringing activities would not constitute receiving a “financial benefit directly attributable to the infringing activity.’” H.R. Rep., at 54. Perfect 10 has not raised a genuine issue of material fact that CWIE receives a direct financial benefit from infringing activity.

The Court also remanded for further consideration the question of whether CCBill, which assists clients by providing billing services for their web sites, is a service provider entitled to the safe harbor protections of 512(a) of the DMCA. Section 512(a) protects service providers from liability for copyright infringement arising out of their acts as conduits – either for intermediate transmission and/or transient storage of material on behalf of, and at the request of third parties.

Importantly, the Ninth Circuit held that to be entitled to the immunity afforded this branch of the DMCA, the materials transmitted do not themselves need to infringe copyright. Rather, such protections apply to the transmission of “all digital online communications, not just those that directly infringe.” Said the Court:

The district court held the CCBill met the requirements of 512(k)(1)(A) by ‘providing a connection to the material on its clients’ websites through a system which it operates in order to provide its clients with billing services. We reject Perfect 10’s arguments that CCBill is not eligible for immunity under 512(a) because it does not itself transmit the infringing material. A service provider is ‘an entity offering the transmission, routing or providing of connections for digital online communications.” There is no requirement in the statute that the communications must themselves be infringing and we see no reason to import such a requirement. It would be perverse to hold a service provider immune for transmitting information that was infringing on its fact, but find it contributorily liable for transmitting information that did not infringe.

Finally, the Ninth Circuit held that the Communications Decency Act immunized defendants from Perfect 10’s claims of unfair competition, false advertising, and violations of rights of publicity. In so doing, the court interpreted section 230(e)(2) of the statute, which states that “nothing in this section shall be construed to limit or expand any law pertaining to intellectual property.” The Ninth Circuit “construe[d] the term ‘intellectual property’ to mean ‘federal intellectual property.’” As such, the immunity afforded the CDA was available for each of the state law claims advanced by Perfect 10 – unfair competition, false advertising and violations of right of publicity – each of which sought to hold defendants liable as speakers or publishers of information provided by, and found on, third party websites.